Dubai’s Al-Futtaim Group to purchase CMC Holdings for $86.67 million

Monday September 9 2013

CMC Chairman Joel Kibe (left) and top shareholder Peter Muthoka. FILE

CMC Chairman Joel Kibe (left) and top shareholder Peter Muthoka. Al-Futtaim Group intends to purchase all the shares of CMC through a cash offer at Ksh13 ($0.15). FILE 

By David Mugwe and Peterson Thiong’o

Al-Futtaim Group, a Dubai-based conglomerate, has announced that it intends to purchase regional motor dealer CMC Holdings for Ksh7.5 billion ($86.67 million).

The Dubai firm, which operates through more than 100 companies in over 20 markets including the Middle East and Asia, on Monday announced that it plans to purchase all the shares of the Nairobi Securities Exchange (NSE) listed firm.

Al-Futtaim Group’s disclosure brings to end months of speculation that started after Joel Kibe, CMC Holdings chairman in June this year during the motor dealer’s 48th and 49th combined annual general meetings said that the firm had informed the Capital Markets Authority (CMA) of a potential share deal.

“We believe in CMC Group, our first sub-Saharan target, the great brands it sells and the employees behind its success over the years. We also respect the heritage of the company and its 65 year-old history in fostering economic development in Kenya,” said Marwan Shehadeh, group director corporate development, Al-Futtaim group in a statement.

Mr Kibe had disclosed that the company was going through due diligence, but the deal had not yet been concluded.

The motor dealer had not held an annual general meeting for two years after board room wars broke out and spilled into the public domain.

This led to investigations and disclosures of fraud and misappropriation of funds that had been taking place over a period of years.

CMC Holdings shares were suspended from trading at the NSE on September 16, 2011 after they last traded at Ksh13.50 ($0.14) and shareholders have not been able to buy or sell ever since.

Although the Al-Futtaim Group did not give a timeline on the planned deal, it said that it will make the purchase through a cash offer at Ksh13 ($0.15), a move that could allow investors to cash out of the company.

“We are continuing our expansion drive across Africa and we hope that CMC will be the jewel in the crown of our inroads into the continent,” said Mr Shehadeh.

CMC Holdings posted a profit after tax of Ksh105.35 million ($1.2 million) for the period ended September 2012 from a loss of Ksh181.14 million ($1.8 million) over the same period the previous year.

The company’s Kenya subsidiary posted a profit of Ksh177.28 million ($2.07 million) as at the end of September last year compared to a Ksh307.45 million ($3.08 million) loss after tax the previous year.

Its Uganda subsidiary saw its profits after tax drop by 70.89 per cent to Ksh25.6 million ($300,223) from Ksh87.94 million ($880,921) over the same time period while its Tanzania subsidiary posted Ksh94.78 million ($1.11 million) loss compared to a profit of Ksh43.11 million ($431,836) the previous period.

CMC has been plagued by a series of business challenges occasioned by board room wrangles and the loss of key franchises.

Last year, the company’s major shareholders—Peter Muthoka and Joel Kibe— were engaged in a protracted boardroom war following accusations that logistics company Andy forwarders, a company associated with Mr Muthoka, had overcharged the motor dealers.

The fallout was further heightened by allegations that a section of board members were privy to a scheme where the management illegal transferred millions of shillings of the company’s funds to an offshore account.

The fallout led to the exit of senior managements as well as a shake-up in the board. The company’s share was also suspended from trading at the Nairobi Securities (NSE).

On the business side, CMC Holdings suffered a business blow when lost the Landover, Jaguar and Ford brands owners appointed new franchise dealers.

The company lost the right to deal in Landover and Jaguar brands to JLR Kenya. The JLR brands accounted for 23 per cent of CMC’s sales in the year to September and their loss is set to impact the auto dealer’s performance.

In October last year CMC lost the exclusive dealership of MAN trucks with the appointment of a second dealer, RT East Africa.

In January, the company’s external auditors, Ernst and Young, expressed a qualified opinion—meaning the company did offer all material information required to make judgment on the company’s financial status— on the accounts due to the existence of offshore bank accounts not recorded in the group’s books.

The matter remains under investigation by regulators. The company remains suspended from trading at the bourse.

The offer price of Ksh13 per share means shareholders will be selling the firm at a discount to the Ksh13.50 that it last traded in. The pricing could have been informed by the loss of exclusive rights to some of its key franchises.

The disclosure by Al-Futtaim Group comes barely a month after AccessKenya, a telecommunications firm that is also listed on the NSE said that it is in the process of finalizing a takeover deal with South Africa’s Dimension Data in a Ksh3.05 billion ($36.4 million) deal that will see the company delist from the bourse.

AccessKenya has already said that its sale to Dimension Data has already been declared unconditional, meaning that it will be concluded and the company will delist from the Nairobi bourse.